MERRILL LYNCH
PHOENIX
FUND, INC.
STRATEGIC
Performance
Semi-Annual Report
January 31, 1999
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
In 1998, stock and bond market volatility reflected shifting investor
perceptions regarding global economic prospects. In the latter half of the year,
investor optimism gave way to expectations of deteriorating corporate profits
and signs of a weakening economy. Further concerns arose from the precarious
state of the Russian and other emerging market economies. However, when the US
Federal Reserve Board and other central banks responded to the uncertain
economic outlook through a series of monetary policy easings, investor
confidence was restored as 1998 drew to a close and 1999 began. Nevertheless,
volatility soon returned to the capital markets as uncertainty regarding
economic prospects again began to cloud the investment outlook. At the same
time, with stronger-than-expected economic results, prospects dimmed for further
Federal Reserve Board monetary policy easings in the near future.
The weakening of the US dollar relative to the Japanese yen was one of the more
surprising developments that occurred during 1998. Since a stronger yen would
have a negative impact on the important export sector of Japan's fragile
economy, the Japanese central bank intervened in the currency markets in
January. For the overall global economy, the deepening recession in Japan is of
great concern. At the same time, the difficulties in emerging economies such as
Russia and Brazil remain. As 1999 unfolds, progress in easing strains within the
global financial system would likely provide an important element of stability
to the volatile investment environment.
Portfolio Matters
For the quarter ended January 31, 1999, Merrill Lynch Phoenix Fund, Inc.'s Class
A, Class B, Class C and Class D Shares had total returns of +10.08%, +9.78%,
+9.77% and +9.99%, respectively. (Fund results do not reflect sales charges, and
would be lower if sales charges were included. Complete performance information
can be found on pages 3 and 4 of this report to shareholders.)
During the January quarter, the US equity market continued to recover, driven by
a favorable global monetary climate and a resilient domestic economy that has
been able to weather the effects of global turmoil. During this period, market
leadership remained narrowly focused on large-capitalization growth issues as
investors continued to pay a premium for liquidity and consistency of earnings.
Technology was the top-performing sector, reflecting a stronger-than-normal
seasonal recovery and improving earnings. The strength in technology stocks was
also driven by investor exuberance for Internet-related stocks.
Merrill Lynch Phoenix Fund, Inc. also posted a recovery during the quarter, but
lagged the broad market indexes, since secondary and smaller-capitalization
issues continued to underperform larger-capitalization growth stocks. This
performance and corresponding valuation disparity between mid and large cap
stocks reached unprecedented levels in 1998, which we believe could set the
stage for improved relative performance for mid cap issues in 1999. In our view,
the favorable domestic economic backdrop favors small/mid cap issues, since
their earnings are more dependent upon the domestic business climate. The Fund's
performance during the quarter was also diluted by its cyclical and commodity
holdings -- such as EEX Corporation, KCS Energy, Inc., Diamond Offshore
Drilling, Inc. and Birmingham Steel Corporation -- reflecting deflationary
pricing pressure and slowing global demand.
During the January quarter, the Fund's best-performing holdings were those in
the technology sector. Novell, Inc., one of the Fund's top ten holdings,
continued to build momentum from its release of the NetWare 5 network operating
system and new prod-
1
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
uct pipeline. Mentor Graphics Corporation and LSI Logic Corporation's
appreciation reflected broad recovery in the semiconductor industry, while
Corning Incorporated benefited from growing optical fiber demand. A number of
the Fund's smaller-capitalization issues also had favorable market performance
during the period. Safety-Kleen Corp. and Anacomp, Inc. continued to execute
their operating plans and are on track in their respective acquisition
integrations. IVAX Corporation's stock performance reflected an improved
earnings outlook and new product pipeline.
During the January quarter, we closed out positions in Pharmacia & Upjohn, Inc.,
Micron Electronics, Inc., Pharmaceutical Product Development, Inc. and Maxtor
Corporation, since these stocks reached our price objectives. We also sold our
investment in IMC Global Inc., since it became a highly leveraged company
subsequent to making a large acquisition of a chemical company. Should IMC
Global be successful in paying down debt through divestitures, we would consider
re-establishing the position.
During the January quarter, we accumulated shares in Burlington Resources Inc.,
Borders Group, Inc. and additional shares of Raychem Corporation. Burlington
Resources is the largest domestic independent natural gas exploration and
production company and is highly leveraged to the North American market. We
believe that the company is well positioned to capitalize on a recovery in the
natural gas market, which has been adversely impacted by unseasonably warm
winter weather. The resulting excess inventory and depressed price levels have
reduced industry production and exploration, which combined with ongoing
economic strength, should correct the supply/demand imbalance. Burlington
Resources' strong balance sheet should, in our opinion, also allow the company
to take advantage of depressed asset values and capitalize on acquisition
opportunities.
Borders Group, Inc. is a leading book retailer experiencing a slowing in sales
momentum that has also produced disappointing earnings. New management is
currently in the process of implementing several marketing and Internet-related
initiatives aimed at improving overall sales and building the company's brand
name. Raychem Corporation is a global specialty chemical company servicing the
electronics component, telecommunications and industrial markets. Global
economic turmoil has adversely impacted the company's sales and has masked
Raychem's efforts to improve operating efficiencies. The company remains
committed to driving down its cost structure and improving productivity. Strong
cash flows provide Raychem the flexibility to reduce its capitalization by
repurchasing shares and/or making additional acquisitions.
In Conclusion
We continue to find alternative investment opportunities within the small-to-mid
cap universe of stocks, which are trading at historically wide discounts to
large cap issues. We believe that ongoing domestic industrial strength bodes
well for a recovery in these shares, since their operations are more closely
linked to the US business cycle. Although we cannot predict with confidence when
the wide valuation disparity between small cap stocks and large cap issues will
correct, we believe that the Fund is well positioned to benefit from such a
recovery when it occurs.
We thank you for your investment in Merrill Lynch Phoenix Fund, Inc., and we
look forward to reviewing our outlook and strategy with you again in our next
report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
Executive Vice President
/s/ Robert J. Martorelli
Robert J. Martorelli
Senior Vice President and Portfolio Manager
March 3, 1999
2
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Average
Annual Total Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Dividends paid to
each class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to each class,
which are deducted from the income available to be paid to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 12/31/98 + 4.72% - 0.78%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 +10.62 + 9.43
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/98 +12.90 +12.29
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/98 + 3.72% + 0.20%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 + 9.50 + 9.50
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/98 +11.75 +11.75
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 12/31/98 + 3.62% + 2.74%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/98 +11.42 +11.42
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 12/31/98 + 4.55% - 0.94%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/98 +12.32 +10.88
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
3
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
PERFORMANCE DATA (concluded)
Recent Performance Results
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
================================================================================
ML Phoenix Fund, Inc. Class A Shares* + 6.43% +10.08% +239.63%
- --------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class B Shares* + 5.37 + 9.78 +206.68
- --------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class C Shares* + 5.38 + 9.77 + 64.32
- --------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class D Shares* + 6.16 + 9.99 + 69.92
- --------------------------------------------------------------------------------
Standard & Poor's 500 Index** +32.49 +16.86 +462.67/+200.44
================================================================================
* Investment results shown do not reflect sales charges; results would be lower
if a sales charge was included. Total investment returns are based on changes
in net asset values for the periods shown, and assume reinvestment of all
dividends and capital gains distributions at net asset value on the
ex-dividend date. The Fund's ten-year/since inception periods are Class A &
Class B Shares, for the ten years ended 1/31/99 and Class C & Class D Shares,
from 10/21/94 to 1/31/99.
** An unmanaged broad-based index comprised of common stocks. Ten years/since
inception total returns are for the ten years ended 1/31/99 and from 10/21/94
to 1/31/99, respectively.
PORTFOLIO INFORMATION
As of January 31, 1999
Percent of
Ten Largest Holdings Net Assets
Anacomp, Inc. ....................................................... 4.6%
Novell, Inc. ........................................................ 4.5
The Seagram Company Ltd. ............................................ 4.4
Integrated Device Technology, Inc. .................................. 4.3
Safety-Kleen Corp. .................................................. 4.2
Motorola, Inc. ...................................................... 4.0
Union Pacific Corporation ........................................... 3.8
IVAX Corporation .................................................... 3.8
Aetna Inc. .......................................................... 3.7
Inprise Corporation ................................................. 3.6
Percent of
Five Largest Industries Net Assets
Semiconductors ...................................................... 11.6%
Computer Software ................................................... 11.1
Health Care ......................................................... 8.5
Energy Related ...................................................... 6.0
Leisure & Entertainment ............................................. 5.9
Percent of
Asset Mix Net Assets
Stocks .............................................................. 85.7%
Bonds ............................................................... 9.6
Cash & Cash Equivalents ............................................. 4.7
Stock Portfolio Changes for the Quarter Ended January 31, 1999
Additions
Borders Group, Inc.
Burlington Resources Inc.
*MedPartners, Inc.
Walker Interactive Systems, Inc.
Deletions
EMCOR Group, Inc.
IMC Global Inc.
Maxtor Corporation
*MedPartners, Inc.
Micron Electronics, Inc.
Pharmaceutical Product Development, Inc.
Pharmacia & Upjohn, Inc.
Philip Services Corp.
* Added and deleted in the same quarter.
4
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount to Assets
- ----------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 500,000 The Seagram Company Ltd. $ 17,224,320 $ 23,687,500 4.4%
- ----------------------------------------------------------------------------------------------------------------
Printing & Publishing 1,083,900 +Scitex Corporation Ltd. (Ordinary) 9,614,243 11,109,975 2.0
- ----------------------------------------------------------------------------------------------------------------
Total Discount to Assets 26,838,563 34,797,475 6.4
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Earnings Turnaround
- ----------------------------------------------------------------------------------------------------------------
Computer Software 1,400,000 +Mentor Graphics Corporation 14,049,847 14,612,500 2.7
- ----------------------------------------------------------------------------------------------------------------
Consumer Products 2,700,000 +The Topps Company, Inc. (d) 14,976,635 13,162,500 2.4
- ----------------------------------------------------------------------------------------------------------------
Diversified 465,000 Raychem Corporation 12,730,723 11,683,125 2.2
- ----------------------------------------------------------------------------------------------------------------
Energy Related 400,000 Burlington Resources Inc. 14,518,750 12,100,000 2.2
500,000 Diamond Offshore Drilling, Inc. 13,273,020 11,500,000 2.1
1,000,000 +EEX Corporation** 18,535,441 5,187,500 1.0
1,614,200 KCS Energy, Inc. (d) 19,383,544 3,833,725 0.7
- ----------------------------------------------------------------------------------------------------------------
Gold 98,900 Placer Dome Inc. 1,240,746 1,106,444 0.2
- ----------------------------------------------------------------------------------------------------------------
Health Care 1,300,000 +NeoRx Corporation (d) 7,991,431 2,762,500 0.5
- ----------------------------------------------------------------------------------------------------------------
Industrial Services 1,500,000 +Anacomp, Inc. (d) 10,341,463 25,125,000 4.6
- ----------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 900,000 +CST Entertainment, Inc. (b) 675,000 4,500 0.0
- ----------------------------------------------------------------------------------------------------------------
Packaging 450,000 Crown Cork & Seal Company, Inc. 13,980,540 14,259,375 2.6
- ----------------------------------------------------------------------------------------------------------------
Retail 500,000 +Borders Group, Inc. 9,425,958 8,562,500 1.6
- ----------------------------------------------------------------------------------------------------------------
Semiconductors 2,950,000 +Integrated Device Technology, Inc. 23,112,052 23,231,250 4.3
500,000 +LSI Logic Corporation 6,978,090 13,937,500 2.6
3,120,000 +LTX Corporation (d) 16,462,854 12,675,000 2.3
1,000,000 +National Semiconductor Corporation 9,383,202 12,937,500 2.4
- ----------------------------------------------------------------------------------------------------------------
Steel 1,000,000 Birmingham Steel Corporation 13,773,691 4,437,500 0.8
- ----------------------------------------------------------------------------------------------------------------
Telecommunications 300,000 Motorola, Inc. 15,577,900 21,675,000 4.0
- ----------------------------------------------------------------------------------------------------------------
Transportation 400,000 Union Pacific Corporation 17,854,324 20,575,000 3.8
- ----------------------------------------------------------------------------------------------------------------
Total Earnings Turnaround 254,265,211 233,368,419 43.0
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Financial Restructuring
- ----------------------------------------------------------------------------------------------------------------
Consumer Products 611,100 +United States Leather, Inc. 5,679,677 916,650 0.2
- ----------------------------------------------------------------------------------------------------------------
Energy Related 1,981,437 Gulfport Energy Corporation -- Litigation
Trust Certificates 370,839 20 0.0
- ----------------------------------------------------------------------------------------------------------------
Financial Services 3,000,000 +Mego Mortgage Corporation 4,500,000 1,312,500 0.2
- ----------------------------------------------------------------------------------------------------------------
Health Care $16,500,000 +Unison Healthcare Corp., 12.25% due
11/01/2006 (b) 9,962,500 3,300,000 0.6
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Restructuring (concluded)
- ----------------------------------------------------------------------------------------------------------------
Home Builders 2,113,439 +New Millennium Homes, LLC (b) $ 10,246,251 $ 5,283,597 1.0%
$10,250,000 New Millennium Homes, LLC, Senior Notes,
12% due 9/03/2004 (c) 9,187,815 9,020,000 1.7
- ----------------------------------------------------------------------------------------------------------------
Recreation $ 7,960,000 E & S Holdings Corp., Senior Subordinated
Notes, 10.375% due 10/01/2006 3,745,650 3,741,200 0.7
- ----------------------------------------------------------------------------------------------------------------
Supermarkets 1,293,857 +Grand Union Company 12,725,378 16,334,944 3.0
$ 5,000,000 +Penn Traffic Co., Senior Notes, 10.25%
due 2/15/2002 2,445,625 2,400,000 0.4
$ 5,000,000 +Penn Traffic Co., Senior Notes, 8.625%
due 12/15/2003 2,412,500 2,300,000 0.4
- ----------------------------------------------------------------------------------------------------------------
Telecommunications $ 7,500,000 American Telecasting, Inc., Senior
Discount Notes, Series B, 0/14.50% due
8/15/2005 (a) 1,924,935 937,500 0.2
$ 1,648,000 American Telecasting, Inc., 0/14.50% due
6/15/2004 (a) 229,423 214,240 0.0
148,909 +CAI Wireless Systems, Inc. 6,122 167,523 0.0
$ 2,322,651 CAI Wireless Systems, Inc., Senior Notes,
0% due 10/14/2004 (a) 636,935 441,304 0.1
$14,000,000 CS Wireless Systems Inc., Senior Discount
Notes, Series B, 0/11.375% due
3/01/2006 (a) 4,540,822 2,520,000 0.5
- ----------------------------------------------------------------------------------------------------------------
Total Financial Restructuring 68,614,472 48,889,478 9.0
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
High Yield
- ----------------------------------------------------------------------------------------------------------------
Consumer Products $42,475,000 Sunbeam Corporation, Senior Subordinated
Debentures, 8.062% due 3/25/2018 (a)(b) 9,504,709 5,309,375 1.0
- ----------------------------------------------------------------------------------------------------------------
Health Care $ 3,000,000 Graham - Field Products, Inc., Senior
Subordinated Notes, 9.75% due
8/15/2007 (b) 2,105,625 2,100,000 0.4
- ----------------------------------------------------------------------------------------------------------------
Industrial Equipment $ 9,215,000 Derlan Manufacturing Co., Senior Notes,
10% due 1/15/2007 7,897,050 7,832,750 1.4
- ----------------------------------------------------------------------------------------------------------------
Printing & Publishing $ 6,255,400 San Jacinto Holdings, Inc., Senior
Subordinated Notes, 12% due 12/31/2002 4,048,512 2,189,390 0.4
- ----------------------------------------------------------------------------------------------------------------
Telecommunications $30,500,000 +MobileMedia Corp., Senior Subordinated
Notes, 9.375% due 11/01/2007 5,902,313 3,660,000 0.7
- ----------------------------------------------------------------------------------------------------------------
Transportation $18,460,000 +AmeriTruck Distribution Corp., 12.25%
due 11/15/2005 9,197,600 1,107,600 0.2
$10,019,000 Trism Inc., 10.75% due 12/15/2000 8,327,965 4,859,215 0.9
- ----------------------------------------------------------------------------------------------------------------
Total High Yield 46,983,774 27,058,330 5.0
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Operational Restructuring
- ----------------------------------------------------------------------------------------------------------------
Apparel 603,000 +Fruit of the Loom, Inc. (Class A) 8,816,678 8,743,500 1.6
- ----------------------------------------------------------------------------------------------------------------
Beverages 1,500,000 +Coca-Cola Amatil Limited 5,769,232 6,115,464 1.1
- ----------------------------------------------------------------------------------------------------------------
Computer Software 3,800,000 +Inprise Corporation (d) 37,742,849 19,475,000 3.6
1,200,400 +Novell, Inc. 8,600,740 24,458,150 4.5
315,000 +Walker Interactive Systems, Inc. 1,673,437 1,634,062 0.3
- ----------------------------------------------------------------------------------------------------------------
Electrical Equipment 200,000 Corning Incorporated 5,652,000 9,750,000 1.8
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operational Restructuring (concluded)
- ----------------------------------------------------------------------------------------------------------------
Environmental 1,500,000 +Safety-Kleen Corp.*** $ 20,453,807 $ 22,687,500 4.2%
- ----------------------------------------------------------------------------------------------------------------
Health Care 225,000 Aetna Inc. 16,797,345 20,278,125 3.7
1,000,000 Columbia/HCA Healthcare Corporation 24,761,901 18,125,000 3.3
- ----------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 800,000 +Loews Cineplex Entertainment Corporation 8,129,765 8,000,000 1.5
- ----------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,500,000 +IVAX Corporation 12,624,946 20,343,750 3.8
- ----------------------------------------------------------------------------------------------------------------
Steel 1,348,500 +WHX Corporation (d) 11,679,428 13,569,281 2.5
- ----------------------------------------------------------------------------------------------------------------
Total Operational Restructuring 162,702,128 173,179,832 31.9
- ----------------------------------------------------------------------------------------------------------------
Total Investments 559,404,148 517,293,534 95.3
- ----------------------------------------------------------------------------------------------------------------
Face
Amount Short-Term Securities
- ----------------------------------------------------------------------------------------------------------------
Commercial Paper* $ 8,000,000 Caterpillar Inc., 4.80% due 2/05/1999 7,993,600 7,993,600 1.5
1,261,000 Ford Motor Credit Company, 4.83% due
2/01/1999 1,260,662 1,260,662 0.2
20,000,000 Xerox Credit Corp., 4.82% due 2/12/1999 19,965,189 19,965,189 3.7
- ----------------------------------------------------------------------------------------------------------------
Total Short-Term Securities 29,219,451 29,219,451 5.4
- ----------------------------------------------------------------------------------------------------------------
Total Investments $588,623,599 546,512,985 100.7
============
Liabilities in Excess of Other Assets (3,559,799) (0.7)
------------ -----
Net Assets $542,953,186 100.0%
============ =====
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Commercial Paper is traded on a discount basis; the interest rates shown
reflect the discount rates paid at the time of purchase by the Fund.
** The shares of EEX Corporation were subject to a one-for-three reverse
split on December 9, 1998.
*** The shares of Safety-Kleen Corp. were subject to a one-for-four reverse
split on December 1, 1998.
(a) Represents a zero coupon or step bond; the interest rate on a step bond
represents the fixed rate of interest that will commence its accrual on a
predetermined date until maturity.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(d) Investments in companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as follows:
- --------------------------------------------------------------------------------
Net Share Net Dividend
Industry Affiliate Activity Cost Income
- --------------------------------------------------------------------------------
Computer Inprise Corporation 500,000 $ 313,887 +
Software
Consumer The Topps Company, -- -- +
Products Inc.
Energy Related KCS Energy, Inc. 414,200 2,254,706 $64,284
Health Care NeoRx Corporation -- -- +
Industrial Anacomp, Inc. 92,330 1,204,263 +
Services
Semiconductors LTX Corporation 520,000 1,106,095 +
Steel WHX Corporation 50,000 518,750 +
- --------------------------------------------------------------------------------
+ Non-income producing security.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Phoenix Fund, Inc. January 31, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $588,623,599) (Note 1a) $546,512,985
Cash ............................................................ 71,762
Foreign cash (Note 1c) .......................................... 273
Receivables:
Securities sold ............................................... $ 2,473,122
Interest ...................................................... 993,133
Capital shares sold ........................................... 393,304
Dividends ..................................................... 184,268 4,043,827
-----------
Prepaid registration fees and other assets (Note 1f) ............ 31,774
------------
Total assets .................................................... 550,660,621
------------
- ------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Capital shares redeemed ....................................... 4,310,078
Securities purchased .......................................... 2,323,750
Investment adviser (Note 2) ................................... 440,122
Distributor (Note 2) .......................................... 206,082 7,280,032
-----------
Accrued expenses and other liabilities .......................... 427,403
------------
Total liabilities ............................................... 7,707,435
------------
- ------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ...................................................... $542,953,186
============
- ------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000
Consist of: shares authorized ............................................... $ 2,056,127
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ............................................... 2,067,332
Class C Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized ............................................... 72,955
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ............................................... 731,987
Paid-in capital in excess of par ................................ 555,684,974
Accumulated investment loss -- net .............................. (1,018,917)
Undistributed realized capital gains on investments and foreign
currency transactions -- net .................................... 25,469,409
Unrealized depreciation on investments and foreign currency
transactions -- net ............................................. (42,110,681)
------------
Net assets ...................................................... $542,953,186
============
- ------------------------------------------------------------------------------------------------------------
Net Asset Class A-- Based on net assets of $230,916,736 and 20,561,270
Value: shares outstanding .............................................. $ 11.23
============
Class B -- Based on net assets of $222,187,536 and 20,673,322
shares outstanding .............................................. $ 10.75
============
Class C -- Based on net assets of $7,769,097 and 729,546
shares outstanding .............................................. $ 10.65
============
Class D -- Based on net assets of $82,079,817 and 7,319,866
shares outstanding .............................................. $ 11.21
============
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended January 31, 1999
<TABLE>
<S> <C> <C> <C>
Investment Interest and discount earned .................................... $ 4,158,900
Income Dividends (net of $32,288 foreign withholding tax) .............. 1,216,683
(Notes 1d & 1e): ------------
Total income .................................................... 5,375,583
------------
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ............................... $ 2,808,924
Account maintenance and distribution fees -- Class B (Note 2) ... 1,181,775
Transfer agent fees -- Class B (Note 2) ......................... 273,118
Transfer agent fees -- Class A (Note 2) ......................... 246,657
Account maintenance fees -- Class D (Note 2) .................... 101,358
Transfer agent fees -- Class D (Note 2) ......................... 83,631
Printing and shareholder reports ................................ 55,956
Accounting services (Note 2) .................................... 47,722
Professional fees ............................................... 45,109
Account maintenance and distribution fees -- Class C (Note 2) ... 43,761
Directors' fees and expenses .................................... 38,780
Registration fees (Note 1f) ..................................... 35,496
Custodian fees .................................................. 25,211
Transfer agent fees -- Class C (Note 2) ......................... 10,912
Pricing fees .................................................... 617
Other ........................................................... 9,314
------------
Total expenses .................................................. 5,008,341
------------
Investment income -- net ........................................ 367,242
------------
- -----------------------------------------------------------------------------------------------------------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments -- net ............................................ 29,959,277
(Loss) on Foreign currency transactions -- net .......................... (10,702) 29,948,575
Investments & ------------
Foreign Currency Change in unrealized depreciation on:
Transactions -- Net Investments -- net ............................................ (31,577,093)
(Notes 1b, 1c, Foreign currency transactions -- net .......................... 8 (31,577,085)
1e & 3): ------------ ------------
Net realized and unrealized loss on investments and foreign
currency transactions ........................................... (1,628,510)
------------
Net Decrease in Net Assets Resulting from Operations ............ $ (1,261,268)
============
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income -- net ........................................ $ 367,242 $ 2,444,746
Realized gain on investments and foreign currency
transactions -- net ............................................. 29,948,575 135,548,116
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions -- net ........................ (31,577,085) (64,284,208)
------------- -------------
Net increase (decrease) in net assets resulting from operations . (1,261,268) 73,708,654
------------- -------------
- ----------------------------------------------------------------------------------------------------------------------
Dividends & Investment income -- net:
Distributions to Class A ....................................................... (2,622,198) (2,071,936)
Shareholders Class B ....................................................... (284,461) (331,618)
(Note 1g): Class C ....................................................... (8,042) (14,683)
Class D ....................................................... (680,597) (488,410)
Realized gain on investments -- net:
Class A ....................................................... (38,989,784) (63,710,745)
Class B ....................................................... (40,328,457) (70,993,494)
Class C ....................................................... (1,585,995) (2,997,794)
Class D ....................................................... (12,759,045) (18,334,157)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................... (97,258,579) (158,942,837)
------------- -------------
- ----------------------------------------------------------------------------------------------------------------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions .............................................. (28,935,094) 16,827,602
(Note 4): ------------- -------------
- ----------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets .................................... (127,454,941) (68,406,581)
Beginning of period ............................................. 670,408,127 738,814,708
------------- -------------
End of period* .................................................. $ 542,953,186 $ 670,408,127
============= =============
- ----------------------------------------------------------------------------------------------------------------------
*Undistributed (accumulated) investment income (loss) -- net ..... $ (1,018,917) $ 2,209,139
============= =============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A+
----------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended July 31,
January 31, --------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 13.49 $ 15.32 $ 13.37 $ 13.44 $ 13.31
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net ................... .03 .12 .10 .13 .17
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ (.27) 1.33 3.46 .51 1.47
-------- -------- -------- -------- --------
Total from investment operations ........... (.24) 1.45 3.56 .64 1.64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net ................. (.13) (.11) (.06) (.13) (.11)
Realized gain on investments -- net ...... (1.89) (3.17) (1.55) (.58) (1.40)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (2.02) (3.28) (1.61) (.71) (1.51)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 11.23 $ 13.49 $ 15.32 $ 13.37 $ 13.44
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 1.69%++ 10.98% 29.78% 4.78% 13.91%
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................... 1.29%* 1.24% 1.26% 1.24% 1.31%
Net Assets: ======== ======== ======== ======== ========
Investment income -- net ................... .61%* .83% .77% .92% 1.40%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $230,917 $283,005 $301,936 $279,351 $286,258
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 44.07% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B+
----------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended July 31,
January 31, --------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 12.93 $ 14.82 $ 12.99 $ 13.12 $ 13.02
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss) -- net ............ (.02) (.03) (.03) (.01) .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ (.26) 1.28 3.35 .50 1.45
-------- -------- -------- -------- --------
Total from investment operations ........... (.28) 1.25 3.32 .49 1.49
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net ................. (.01) (.01) -- (.04) (.02)
Realized gain on investments -- net ...... (1.89) (3.13) (1.49) (.58) (1.37)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (1.90) (3.14) (1.49) (.62) (1.39)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 10.75 $ 12.93 $ 14.82 $ 12.99 $ 13.12
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 1.22%++ 9.84% 28.48% 3.67% 12.83%
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................... 2.32%* 2.26% 2.29% 2.26% 2.34%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss) -- net ............ (.42%)* (.18%) (.26%) (.11%) .37%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $222,187 $286,396 $337,022 $381,808 $414,886
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 44.07% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C++
----------------------------------------------------
For the
For the Period
The following per share data and ratios have been derived Six Months Oct. 21,
from information provided in the financial statements. Ended For the Year Ended July 31, 1994++ to
January 31, ---------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 12.83 $ 14.72 $ 12.92 $ 13.07 $ 12.31
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss) -- net ............ (.02) (.03) (.04) (.02) .03
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ (.26) 1.29 3.33 .51 1.21
-------- -------- -------- -------- --------
Total from investment operations ........... (.28) 1.26 3.29 .49 1.24
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net ................. (.01) (.02) -- (.06) (.05)
Realized gain on investments -- net ...... (1.89) (3.13) (1.49) (.58) (.43)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (1.90) (3.15) (1.49) (.64) (.48)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 10.65 $ 12.83 $ 14.72 $ 12.92 $ 13.07
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 1.19%++ 9.90% 28.39% 3.69% 10.99%++
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................... 2.33%* 2.27% 2.30% 2.27% 2.39%*
Net Assets: ======== ======== ======== ======== ========
Investment income (loss) -- net ............ (.44%)* (.19%) (.27%) (.12%) .34%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $ 7,769 $ 11,316 $ 14,448 $ 15,821 $ 11,775
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 44.07% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D++
----------------------------------------------------
For the
For the Period
The following per share data and ratios have been derived Six Months Oct. 21,
from information provided in the financial statements. Ended For the Year Ended July 31, 1994++ to
January 31, ---------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period........ $ 13.45 $ 15.29 $ 13.35 $ 13.43 $ 12.57
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net.................... .02 .08 .07 .09 .11
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ (.27) 1.33 3.45 .51 1.25
-------- -------- -------- -------- --------
Total from investment operations............ (.25) 1.41 3.52 .60 1.36
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net.................. (.10) (.09) (.04) (.10) (.07)
Realized gain on investments -- net....... (1.89) (3.16) (1.54) (.58) (.43)
-------- -------- -------- -------- --------
Total dividends and distributions........... (1.99) (3.25) (1.58) (.68) (.50)
-------- -------- -------- -------- --------
Net asset value, end of period.............. $ 11.21 $ 13.45 $ 15.29 $ 13.35 $ 13.43
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share.......... 1.58%++ 10.70% 29.44% 4.50% 11.72%++
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses.................................... 1.54%* 1.51% 1.52% 1.48% 1.60%*
Net Assets: ======== ======== ======== ======== ========
Investment income -- net.................... .38%* .59% .54% .67% 1.11%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands).... $ 82,080 $ 89,691 $ 85,409 $ 48,873 $ 36,388
Data: ======== ======== ======== ======== ========
Portfolio turnover.......................... 44.07% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Phoenix Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management accruals
and estimates. These unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the Merrill Lynch
Select PricingSM System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments are stated at market value.
Securities and assets for which market value quotations are not available are
valued at their fair value as determined in good faith by or under the direction
of the Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not perform
under the contract.
Options -- The Fund is authorized to write covered call options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked to market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required. Under the applicable foreign
15
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
tax law, a withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has
entered into an Investment Advisory Agreement with Fund Asset Management, L.P.
("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds Distributor ("MLFD" or
"Distributor"), a division of Princeton Funds Distributor, Inc. ("PFD"), which
is a wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
rates: 1.00% of average daily net assets not exceeding $500 million; 0.95% of
average daily net assets in excess of $500 million but not exceeding $1 billion;
and 0.90% of average daily net assets in excess of $1 billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B .......................... 0.25% 0.75%
Class C .......................... 0.25% 0.75%
Class D .......................... 0.25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended January 31, 1999, MLFD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A .................................. $488 $7,091
Class D .................................. $401 $6,259
- --------------------------------------------------------------------------------
For the six months ended January 31, 1999, MLPF&S received contingent deferred
sales charges of $107,368 and $1,369 relating to transactions in Class B and
Class C Shares, respectively.
In addition, MLPF&S received $90,117 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended January
31, 1999.
During the six months ended January 31, 1999, the Fund paid Merrill Lynch
Security Pricing Service, an
16
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
affiliate of MLPF&S, $40 for security price quotations to compute the net asset
value of the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended January 31, 1999 were $232,339,525 and $347,356,705, respectively.
Net realized gains (losses) for the six months ended January 31, 1999 and net
unrealized losses as of January 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments .................. $ 29,958,774 $(42,110,614)
Short-term investments ................. 503 --
Foreign currency transactions .......... (10,702) (67)
------------ ------------
Total .................................. $ 29,948,575 $(42,110,681)
============ ============
- --------------------------------------------------------------------------------
As of January 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $42,110,614, of which $82,430,359 related to appreciated
securities and $124,540,973 related to depreciated securities. At January 31,
1999, the aggregate cost of investments for Federal income tax purposes was
$588,623,599.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(28,935,094) and $16,827,602 for the six months ended January 31, 1999 and
for the year ended July 31, 1998, respectively. Transactions in capital shares
for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 950,446 $ 10,157,093
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 4,055,373 37,136,759
---------- -------------
Total issued ........................... 5,005,819 47,293,852
Shares redeemed ........................ (5,430,354) (57,716,055)
---------- -------------
Net decrease ........................... (424,535) $(10,422,203)
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 3,072,942 $ 42,892,690
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 4,281,696 56,397,472
---------- -------------
Total issued ........................... 7,354,638 99,290,162
Shares redeemed ........................ (6,083,241) (83,944,710)
---------- -------------
Net increase ........................... 1,271,397 $ 15,345,452
========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,478,563 $ 15,031,577
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 4,200,704 37,000,612
---------- -------------
Total issued ........................... 5,679,267 52,032,189
Shares redeemed ........................ (6,612,795) (67,743,262)
Automatic conversion
of shares .............................. (547,320) (5,753,137)
---------- -------------
Net decrease ........................... (1,480,848) $(21,464,210)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 3,021,386 $ 41,058,916
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 5,085,899 64,767,544
---------- -------------
Total issued ........................... 8,107,285 105,826,460
Automatic conversion of shares ......... (7,674,858) (103,277,768)
Shares redeemed ........................ (1,026,345) (13,724,180)
---------- -------------
Net decrease ........................... (593,918) $ (11,175,488)
========== =============
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 25,437 $ 260,187
Shares issued to shareholders
in reinvestment of
dividends and distributions .............. 161,334 1,407,096
-------- -----------
Total issued ............................. 186,771 1,667,283
Shares redeemed .......................... (339,420) (3,430,644)
-------- -----------
Net decrease ............................. (152,649) $(1,763,361)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 446,268 $ 5,967,922
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 210,620 2,664,763
-------- ------------
Total issued ........................... 656,888 8,632,685
Shares redeemed ........................ (755,911) (10,121,962)
-------- ------------
Net decrease ........................... (99,023) $ (1,489,277)
======== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended January 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 691,781 $ 6,837,652
Automatic conversion
of shares .............................. 525,680 5,753,137
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 1,338,620 12,267,383
---------- ------------
Total issued ........................... 2,556,081 24,858,172
Shares redeemed ........................ (1,904,771) (20,143,492)
---------- ------------
Net increase ........................... 651,310 $ 4,714,680
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,131,275 $ 15,753,197
Automatic conversion of shares ......... 990,830 13,724,180
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 1,281,377 16,844,867
---------- ------------
Total issued ........................... 3,403,482 46,322,244
Shares redeemed ........................ (2,321,058) (32,175,329)
---------- ------------
Net increase ........................... 1,082,424 $ 14,146,915
========== ============
- --------------------------------------------------------------------------------
18
<PAGE>
Merrill Lynch Phoenix Fund, Inc January 31, 1999
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Robert J. Martorelli, Senior Vice President and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer and Norman R. Harvey, Senior Vice President of
Merrill Lynch Phoenix Fund, Inc. have recently retired. Their colleagues at
Merrill Lynch Asset Management, L.P. join the Fund's Board of Directors in
wishing Mr. Richard and Mr. Harvey well in their retirements.
- --------------------------------------------------------------------------------
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Phoenix Fund, Inc. is not related to Phoenix Home Life Mutual Life
Insurance Company or any of its subsidiaries or affiliates, including The
Phoenix Series Fund.
Merrill Lynch
Phoenix Fund, Inc.
Box 9011
Princeton, NJ
08543
#10263 -- 1/99
[Logo] Printed on post-consumer recycled paper
